In an effort to respond to the current market conditions including the
inability of many small businesses to obtain financing, the Small Business
Administration (SBA) has made temporary changes to its Debenture Leverage
As of May 14, 2009, the Office of Investment will accept commitment
applications for Debenture Leverage with debt service plans that demonstrate the
ability to service the semi-annual interest payments from any source including
the Debenture Leverage itself; provided that such debt will only be used to
provide follow-on financings for portfolio companies that were initially
financed prior to December 31, 2008.
Those SBIC Funds that intend to use Debenture Leverage to make initial
investments in new portfolio companies will still be required to demonstrate the
ability to service the interest from sources other than Debenture Leverage.
All commitment applications will be reviewed by the Associate Administrator
for Investment according to the current standard operating procedures. In most
cases, applications will be submitted for review within forty-five days of
receipt by the SBA.
The SBA expects the Office of Investment to review this measure every six
months to determine whether it continues to be appropriate for the market.
This temporary change when combined with a difficult fundraising environment
and the permanent changes made to the SBIC Program pursuant to the
American Recovery and Reinvestment
Act of 2009 (the “Recovery Act”) have made the SBIC Program an attractive
opportunity for many large and middle market private equity funds.
Equity group at McGuireWoods LLP is dedicated to keeping our clients advised
of new legislative and business developments as they occur. If you have any
questions regarding these issues, please feel free to contact your primary
attorney at McGuireWoods LLP or the authors.